Category: Corporate Governance

Investment advisers may want to think twice before texting clients any advice in the New Year.

In a recently issued Risk Alert, the U.S. Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) reminded investment advisers of their obligations under the Investment Advisers Act of 1940 (Advisers Act) when they or their personnel use electronic messaging for business-related communications.

It is not enough for companies to establish policies and procedures designed to prevent the misuse of material nonpublic information. Companies must also enforce those policies and procedures.

That’s the lesson from the U.S. Securities and Exchange Commission's recent settlement with Mizuho Securities USA LLC (“Mizuho”), a broker-dealer, for the firm’s failure to safeguard customer information.

The Equifax hack has taken another twist – one that raises questions that every public company should consider.

Last week, federal prosecutors charged Equifax’s former Chief Information Officer, Jun Ying, with insider trading for allegedly dumping nearly $1 million in stock before the massive Equifax breach went public. He also faces civil charges filed by the U.S. Security and Exchange Commission (SEC).

Last week, the New York Department of Financial Services (DFS) sent notices to companies that had not yet certified their compliance with the DFS Cybersecurity Regulation. DFS not-so-gently reminds companies to submit a Notice of Exemption or a Certificate of Compliance. A copy of that notice is now available online.

Today, financial institutions with ties to New York are spending their Valentine’s Day learning how to use the New York State Department of Financial Services (DFS) web portal.

Almost a year ago, the DFS unveiled one of the most aggressive efforts in the nation to crack down on cybercrime in the banking and insurance industries. And by tomorrow, more than 3,000 firms are required to file through the agency’s online portal their first ever compliance certificate, swearing that their organization has satisfied the first phase of requirements under the state’s new cybersecurity regulation.

On Tuesday, a Senate subcommittee grilled Uber’s Chief Information Security Officer, John Flynn, over a 2016 data breach that affected nearly 57 million drivers and riders. At the hearing, Uber faced backlash from lawmakers for its “morally wrong and legally reprehensible” conduct that “violated not only the law but the norm of what should be expected.”

At the end of last year, the National Association of Insurance Commissioners (NAIC) adopted an Insurance Data Security Model Law. The “purpose and intent” of the law is to “establish[] standards for data security and investigation and notification of data security applicable to insurance providers.”

For the several thousand financial institutions and insurance companies covered by New York’s landmark data security regulation, the first certification of compliance must be filed with the State’s Department of Financial Services in less than a month.

It’s unusual for victims of ransomware to publicly acknowledge that they have paid hackers to go away. But a regional hospital in Indiana has made public its experience last week with a “sophisticated criminal group” as a teachable moment for other institutions faced with the vexing choice of whether to give in to the ransom demands of cybercriminals.

On February 15th, organizations subject to the New York Department of Financial Services Cybersecurity Regulation are required to submit their first annual certification attesting to their compliance with the state’s new data security requirements.

Equifax Inc.’s interim CEO, Paulino do Rego Barros Jr., issued the company’s second public apology this morning for the massive data breach that has affected as many as 143 million U.S. consumers.

In a Wall Street Journal op-ed, Barros acknowledged the company’s ball drop in handling the breach and promised to “act quickly and forcefully to correct our mistakes.” He said the company will introduce a new service that would permit consumers to control access to their personal credit data.

In one of the first federal appellate court rulings following the Ninth Circuit’s decision in Robins v. Spokeo, the Eighth Circuit delivered a pyrrhic victory for customers victimized by a data breach. In Kuhns v. Scottrade, the Eighth Circuit ruled that, although the plaintiff had established standing to pursue a claim against Scottrade, Inc. resulting from a data breach that occurred in 2013, the customer failed to sufficiently allege that the brokerage firm breached its contractual obligations and affirmed dismissal of the case.

Last week, the U.S. Securities and Exchange Commission’s (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”) released its “Observations from Cybersecurity Examinations” conducted pursuant to OCIE’s “Cybersecurity 2 Initiative.” A copy of the summary is available here. This is a follow-on to an earlier series of examinations (the “Cybersecurity 1 Initiative”) conducted in 2014.

Companies subject to New York’s Department of Financial Services (DFS) new cybersecurity regulation should be preparing to comply with the first round of requirements by the upcoming August 28th deadline: enacting a cybersecurity program and policies, implementing user access privileges, designating a Chief Information Security Officer (CISO), employing qualified personnel, and implementing an incident response plan.

A federal appeals court earlier this week dealt a blow to healthcare insurer CareFirst, Inc., concluding that a group of customers have the right to pursue a class action data breach lawsuit based on a 2014 cyberattack.

The Federal Trade Commission (FTC) – often criticized for not providing clear guidance as to what the agency considers reasonable data security – announced on Friday that it would publish a weekly blog discussing “lessons learned” from data security investigations that were closed without a formal enforcement action.

New York’s powerful Department of Financial Services (DFS) upended cybersecurity regulation with its new and sweeping “Cybersecurity Requirements for Financial Services Companies,” which took effect on March 1, 2017. But is the financial industry ready and equipped to comply with this detailed regulation? According to a recent survey published by Ponemon Institute and sponsored by Fasoo, the answer is an unequivocal “no.”

New York’s Department of Financial Services (DFS) has issued additional guidance for compliance with the state’s sweeping cybersecurity regulation that went into effect earlier this year. Companies covered by the regulation must comply with the first round of requirements by August 28th.

In the aftermath of two powerful global ransomware attacks, a Michigan-based medical equipment provider has disclosed that hackers “encrypted our data files” and accessed more than 500,000 patient records in what is believed to be the largest reported ransomware attack on health care information.

Yesterday morning, the United States Court of Appeals for the Eleventh Circuit, sitting in Miami, heard oral argument in the case of LabMD, Inc. v. Federal Trade Commission, No. 16-16270.

For purposes of this post, we presume readers are familiar with this case, which we’ve blogged about extensively since the Federal Trade Commission lodged an Administrative Complaint against LabMD back in 2013. Briefly, the core question on appeal is whether the FTC overstepped its authority under Section 5(n) of the Federal Trade Commission Act (codified at 15 U.S.C. § 45(n)) when it initiated an enforcement action against LabMD, a Georgia medical testing lab, after certain patient data files were apparently misappropriated, but no patent data actually fell into the wrong hands, and no individual patient suffered any cognizable injury, such as identity theft.

In a consequential test of the Federal Trade Commission’s authority as a data security regulator, the U.S. Court of Appeals for the Eleventh Circuit will hear argument tomorrow in a case that will determine whether the agency must show a concrete consumer injury as an element of an enforcement action, just as private plaintiffs have been required to do for years.

In our series of posts leading up to the August 28th deadline for the first phase of requirements under New York’s cybersecurity regulation, the Patterson Belknap team looks at issues that institutions face as they implement the new rules.

In complying with the New York State Department of Financial Services (DFS) cybersecurity regulation, financial institutions have a choice. They can either employ “continuous monitoring” or, instead, conduct annual “penetration testing” and bi-annual “vulnerability assessments.”

New survey reports less than half of financial firms will meet deadline

by Kade N. Olsen and Craig A. Newman on June 16, 2017

A new survey by the Ponemon Institute reports that less than half of the financial institutions covered by New York’s sweeping new cybersecurity regulation say they will “likely” meet next February’s compliance deadline. And even more stunning is the fact that only 13% of those institutions surveyed reported “with certainty” that they would be in full compliance with the regulation by next year.

In our series of posts leading up to the August 28th deadline for the first phase of requirements under New York’s cybersecurity regulation, the Patterson Belknap team looks at issues that institutions face as they implement the new rules.

Faced with an approaching August 28th deadline, the more than 3,000 financial institutions that do business in New York should be knee-deep in implementing the first wave of requirements under the State’s sweeping and unprecedented cybersecurity regulation.

The Wall Street Journal recently reported that well-known cybersecurity startup Tanium, Inc. had been inadvertently exposing one of its clients’ sensitive data during product demonstrations. Unbeknownst to the Tanium client—the non-profit El Camino Hospital, in Santa Clara County, California—Tanium had been giving prospective customers a look inside of El Camino’s secure network to show how well its cybersecurity software worked. Not only did Tanium give the presentation “hundreds of times,” it also posted videos of the demonstration on its public website. All of this was without El Camino’s permission.

Increasingly, states are enacting cybersecurity regulations for financial institutions and investment advisors. Following New York’s groundbreaking regulation (which we have covered in detail here), Colorado recently proposed changes to its state securities act that would impose new cybersecurity requirements on broker-dealers and investment advisors that operate in the state.

For healthcare insurers that operate in New York, data security regulation has gotten more complicated. The U.S. Department of Health and Human Services’ Office for Civil Rights has been the industry’s primary data security regulator.

New York’s top banking regulator would like the state’s new sweeping – and highly detailed – cybersecurity regulation to serve as a national model for insurance companies in safeguarding their institutions from cybercrime.

New York State Department of Financial Services Superintendent Maria T. Vullo is scheduled to discuss the state’s new “first in the nation” cybersecurity regulation later this week at the National Association of Insurance Commissioners annual meeting in Denver.

Over the last few months, the New York Department of Financial Services (“DFS”) cybersecurity regulation has undergone multiplerevisions. But late last week, DFS issued its final regulation, which will go into effect on March 1, 2017.

New York’s Department of Financial Services issued its final Cybersecurity Regulation last night with an effective date of March 1, 2017. For a comparison between the previous proposal and the final regulation, please click here.

On January 23, 2017, President Donald Trump named Ajit Pai as Chairman of the Federal Communications Commission (FCC). In his previous role as the senior Republican on the FCC under President Barack Obama, Mr. Pai was an outspoken critic of the agency’s decision to assert jurisdiction over Internet Service Providers (“ISPs”) and its rules governing broadband privacy. Pai’s appointment suggests that significant changes may be on the horizon.

Back in December 2013, a U.S. magistrate issued a seemingly routine warrant in a narcotics case demanding that Microsoft turn over messages from a customer’s email account that resided on a server in Ireland. That warrant, which issued under a 1986 law called the Stored Communications Act (“SCA”), 18 U.S.C. § 2703, is still being debated today.

The U.S. Securities and Exchange Commission is reportedly looking into whether two data breaches at Yahoo!, Inc. should have been disclosed earlier. In a front page article today, the Wall Street Journalreported that “people familiar with the matter” say the SEC is investigating whether Yahoo!’s disclosures complied with the securities laws.

Today, Reuters reported that the New York Department of Financial Services (“DFS”) will delay the effective date of its new cybersecurity regulation. According to a “person familiar with the matter,” the DFS will publish a new version of the cyber security regulation on December 28, 2016, and the effective date for the rule will now be March 1, 2017.

Industry groups continued their assault yesterday on New York’s “first-in-the-nation” cybersecurity regulation by telling state lawmakers that the proposed regime was inflexible and unfairly burdened smaller institutions.

On Wednesday, Yahoo! disclosed that more than 1 billion of its users’ personal information was exposed in a newly discovered cyber-attack, making it the largest data breach reported to date. The breach apparently took place in August of 2013.

Just weeks before the Cuomo administration’s “first-in-the-nation” cybersecurity regulation is scheduled to go into effect, the New York State Assembly Standing Committee on Banks will open a public hearing on Monday, December 19th into the controversial plan to require financial institutions that operate in New York to comply with a series of strict – and in some cases, unprecedented – data security measures.

This is the second installment in our interview with Steven Grossman, VP Strategy & Enablement at Bay Dynamics, the cyber risk analytics company. Here, Steven discusses the importance of aligning an institution’s risk profile with its cybersecurity plan and recommendations for bridging the gap between IT and the boardroom.

As part of Patterson Belknap’s continuing focus on the New York Department of Financial Services (DFS) proposed cybersecurity regulation, we sat down with Steven Grossman, VP Strategy & Enablement at Bay Dynamics, a cyber risk analytics company, to talk about cybersecurity in a highly regulated environment. In the first installment of our 2-part interview with Steven, he discusses implementation of the new regulation and the fact that organizations shouldn’t confuse regulatory compliance with effective cybersecurity planning and strategy.

About Our Blog

DataSecurityLaw.com is the firm’s resource for the latest news, analysis, and thought leadership in the critical area of privacy and cybersecurity law. Patterson Belknap’s Privacy and Data Security practice provides public and private enterprises, their leadership teams and boards with comprehensive services in this critical area. Our team of experienced litigators, corporate advisors and former federal and state prosecutors advises on a broad range of privacy and data protection matters including cyber preparedness and compliance, data breach response, special board and committee representation, internal investigations, and litigation.